United States: A Big Year For Trademarks: Part 2

A lot happened in 2016, including in the world of trademark jurisprudence. Last year brought several important decisions that will change the way companies and litigants approach trademark enforcement and protection. In this second instalment of two articles, we discuss five cases that address the constitutionality of the Lanham Act's bar on the registration of scandalous and immoral marks, the timing for acquiring fame when asserting a dilution action before the Trademark Trial and Appeal Board, when a consent agreement may not be enough to overcome a USPTO refusal, and the International Trade Commission's invalidation of Converse's 70-year sneaker design.

Scandalous and Immoral Ban Ends

The reverberations of the Federal Circuit's 2015 decision in In re Tam,1 which ruled the Lanham Act's Section 2(a) ban on the registration of "disparaging" trademarks unconstitutional, were felt in 2016. In In re Brunetti,2 the TTAB had refused the applicant's trademark application for FUCT as scandalous and immoral, which the applicant then appealed to the Federal Circuit. On 21 January 2016, the USPTO conceded in a letter brief that the Federal Circuit's reasoning in Tam also requires invalidation of the Lanham Act's prohibition on the registration of scandalous and immoral marks. Although the USPTO was clear that it believes Tam was wrongly decided, it acknowledged that the court's opinion in Tam effectively foreclosed any constitutional distinctions that could be made between the two parts of Section 2(a). Accordingly, the USPTO recommended that the case be remanded to the board for further proceedings.

In the meantime, the Supreme Court upheld the Federal Circuit's decision.3 So, rather than vacate and remand the board's decision, the Federal Circuit ordered the parties to submit supplemental briefing in Brunetti to address the applicability of the Supreme Court's decision.

Incidentally, while the Supreme Court noted that its ruling was limited to Section 2(a)'s disparagement provision, the court recognised that the other portions of Section 2 may likewise constitute an improper government regulation of expression based on message, such as the exclusions on immoral or scandalous marks. Indeed, following the Supreme Court's ruling, the USPTO issued Examination Guide 1-17 on 26 June 2017, noting that it will continue to suspend applications refused on "scandalousness" grounds under Section 2(a) pending a decision in In re Brunetti.

When Must a Dilution Claimant's Mark Have Achieved Fame?

On 31 March, 2016, the TTAB issued a precedential decision clarifying when a dilution claimant's mark must have become famous when opposing use-based applications in Omega SA v. Alpha Phi Omega.4 The Alpha Phi Omega fraternity owns several U.S. registrations for its "Alpha Phi Omega" name and the Greek letters "ΑΦΩ". In 2010, it applied to register its "ΑΦΩ" mark for "headwear; jackets; shirts; [and] sweatshirts" on the basis of use, asserting a first-use date of 1980.

Omega owns several OMEGA marks (shown below) for various goods and services, including, watches, clothes (namely, scarves and neckties), and retail store services featuring watches and jewellery: 

Omega opposed the fraternity's application on grounds of likelihood of confusion and likelihood of dilution by blurring. The board denied the fraternity's motion for summary judgment, finding there were genuine issues of material fact with respect to both claims.

Because the fraternity's application for "ΑΦΩ" was based on use, to prevail on its dilution-by-blurring claim, Omega was required to prove that its OMEGA marks became famous before the fraternity's first use of "ΑΦΩ". The question was whether Omega should be required to prove fame before (1) the fraternity's first use of "ΑΦΩ" for the goods in the application, or (2) the fraternity's first use of "ΑΦΩ" for any goods or services (which the fraternity argued date back to 1925).

After requiring the parties to submit supplemental briefing on this issue, the board held that a plaintiff must establish that its mark became famous prior to any established, continuous use of the defendant's mark as a trademark or trade name, and not merely prior to the defendant's use in connection with the specific goods or services set forth in a defendant's application or registration.

The board based its conclusion on the statutory language and supporting case law. Section 43(c) of the Lanham Act states that the owner of a famous mark is entitled to an injunction against another "who at any time after the owner's mark has become famous, commences use of a mark or trade name in commerce that is likely to cause dilution by blurring...."

Significantly, unlike other sections of the Lanham Act, this language does not specify that the defendant's use of the mark must be in connection with the goods or services set forth in the defendant's application or registration. The board found that this statutory construction was consistent with case law from the Ninth, Fourth, and Federal Circuits.

Because Omega made no allegations regarding the date its OMEGA marks became famous, the board granted Omega 20 days to amend its notice of opposition. Also, because there was a factual dispute as to when the fraternity first used "ΑΦΩ" as a mark or trade name, if the fraternity failed to establish its first use in commerce, the board found Omega would only need to prove fame prior to the fraternity's 5 January 2010 application filing date. On the other hand, to the extent the fraternity established that it first used its "ΑΦΩ" mark in 1925, Omega would be required to prove fame before 1925—a showing that, while possible, could present significant evidentiary challenges.

Practically, this decision protects trademark owners that seek to extend their brands to new goods and services. And challengers must now carefully investigate any and all uses of the opposed mark before bringing dilution claim.

Invalidation of a 70-Year-Old Shoe-Design Mark

In one of the most hotly-litigated trademark cases ever decided by the International Trade Commission, Converse's "midsole" trademark covered by U.S. Registration No 4398753 was deemed invalid.5 As shown below, Converse's trademark covered (1) the design of two stripes on the shoe's midsole, (2) the design of the toe cap, (3) the design of the multi-layered toe bumper featuring diamonds and line patterns, and (4) the relative position of these elements to each other. 

Converse had sought a general exclusion order barring the importation of shoes bearing the above design, initially naming over 30 respondents. Most respondents settled, but Walmart, Skechers, Highline, and New Balance took the case to trial.

The ALJ in the Initial Determination narrowly found that Converse's midsole design had acquired secondary meaning, despite survey evidence showing that only 21.5% of consumers associated the midsole design with a single company (which the ALJ acknowledged was insufficient to support secondary meaning). The ALJ gave weight to other factors such as Converse's sales and advertising evidence and, while recognising it was a close call, ultimately found secondary meaning due to the deference afforded Converse's federal registration. Somewhat paradoxically, the ALJ found that Converse's common-law rights in the midsole design were not protectable, as those rights could not benefit from the presumption of validity afforded federal registrations.

The Commission reversed the ALJ's finding of secondary meaning with respect to the midsole design. In particular, the Commission found that the ALJ had given insufficient weight to the extensive use of the midsole design by multiple third parties over the last 80 years, which weighed "heavily against a finding of secondary meaning." Additionally, the survey evidence, which provided the "strongest and most relevant" evidence as to whether secondary meaning existed, favoured the respondents.

Accordingly, the Commission found no violation of Converse's midsole trademark, either with respect to Converse's registered trademark or its common-law rights.

The Commission's rejection of the ALJ's determination underscores the importance of enforcing a mark against third-party copycats, particularly for trade dress. Once others are allowed in the marketplace, exclusivity (and trade-dress rights) can be lost. This case also highlights the importance of consumer surveys in Lanham Act litigation, which are becoming more common given judicial acceptance of online studies.

Trademark Refusal, Despite Private Consent

On 25 February 2016, the TTAB affirmed a refusal to register the mark TIME TRAVELER BLONDE for "beer", finding it too similar to the registered mark TIME TRAVELER for "beer, ale and lager", despite the existence of a consent agreement between the two brewers.6

On appeal, the applicant, Bay State Brewing Company, Inc, conceded that the marks were similar and the goods were related. However, Bay State maintained that if both brewers adhered to the terms of a consent agreement they had entered into, "confusion is extremely unlikely".

Key provisions of the agreement included a "Geographical Limitation", which provided that Bay State would not use its applied-for mark "outside of New England and the State of New York", while the registrant's use would not be geographically limited. The "Restrictions on Use" provision stated that both parties must use their respective house marks in connection with the marks at issue. And the "Trade Dress" provision stated that the parties would refrain from using confusingly similar packaging, labeling, and/or marketing. The parties provided examples of their respective trade dresses (see below).

The board first found that the identified goods (beer), the trade channels (liquor stores, grocery and convenience stores, bars and restaurants), and classes of purchasers were all virtually identical, as were the two marks. According to the board, the term BLONDE does little or nothing to distinguish the marks because it is a descriptive or generic term for a type of beer. These facts alone presented, "a compelling case for finding a likelihood of confusion."

Against this background, the board found that the consent agreement was not sufficient to avoid the likelihood of consumer confusion. Moreover, it also posed significant issues with respect to providing adequate notice to the public of Bay State's applied-for rights. For example, the board found the "Geographical Limitation" provision caused at least two problems. First, it allowed both parties to use their respective marks in the same territories—New York and New England. Secondly, with respect to trademark registration, these geographical restrictions were not reflected in Bay State's application. The board stated: "The trademark register should reflect...the realities of the marketplace." Though the agreement limited Bay State's use, Bay State would nevertheless own a nationwide registration, which would give Bay State presumptive nationwide exclusive rights to which it was not entitled.

The board found that the other provisions were even less effective. The use of house marks did not alleviate confusion because the marks were virtually identical and the goods were the same. The "Trade Dress" provision was inadequate because, while it prohibited each party from using the other's trade dress, it did not require the use of any particular trade dress by either party. In theory, the parties could use minimal trade dress and display their house marks in small font to comply with the letter of the agreement, but confusion would not be avoided. Moreover, the fact that Bay State's application was based on intent to use compounded the problems. The board stated, [Bay State] essentially is asking the board to make a likelihood of confusion determination based upon its mark (with use of its house mark and trade dress as shown in the examples) that not only is not being registered, but is not even in use yet as reflected by its Section 1(b) application, and which the applicant will not be required to use. That is to say, applicant desires a decision based on its mark, not as applied for, but rather as promised.

Allowing a registration on the basis of such a promise "would result in a failure of the public notice function of registrations".

While the board recognised "the importance of consent agreements entered into by business people and the significant role that they can play in determining likelihood of confusion issues," it found that this particular agreement was not properly designed to avoid confusion. This holding serves as a warning that the board is not obligated to accept consent agreements, and indeed will not rubber-stamp them, when marketplace confusion remains likely despite an agreement's terms and safeguards.

Manhattan Jury Awards Tiffany $8.25M in Damages

On 5 October 2016, a Manhattan civil jury awarded Tiffany $8.25m in punitive damages for Costco Wholesale Corp's sale of rings falsely identified as brand-name "Tiffany" rings.7 This ruling came on the heels of the jury's earlier award of $5.5m in compensatory damages for Costco's unlawful profits dating back to 2007.

The case arose out of Costco's marketing and display of non-Tiffany-brand solitaire diamond rings proximate to signage reading "Platinum Tiffany" and "Round Diamond Ring", or "Platinum Tiffany" and "Round Brilliant Solitaire Ring". Tiffany alleged that Costco did not use the "Tiffany" trademarks in its online advertising, making it difficult to detect its activities through Tiffany's normal trademark policing procedures. Upon learning of Costco's in-store activities in December 2012, Tiffany immediately objected and subsequently filed suit in February 2013.

The district court granted Tiffany's motion for summary judgment for infringement and counterfeiting in September 2015, holding that Tiffany would be permitted to seek an accounting of Costco's profits as a result of its willful infringement. The court also found Tiffany could seek punitive damages under New York unfair competition laws because Tiffany had proffered sufficient evidence upon which a finder of fact could conclude Costco's conduct constituted "gross, wanton or willful fraud". The court rejected Costco's fair-use defence that "Tiffany" was descriptive for a particular type of pronged diamond and no longer functioned as a trademark for a particular source because Tiffany had submitted evidence showing Costco's bad faith. Specifically, Costco had been requesting that its vendors copy Tiffany products, that Costco employees knew of the vendors' efforts to do so, and took no action to stop it.

On 29 September 2016, the jury estimated Costco's profits at $3.7m, but finding that sum inadequate to compensate Tiffany, added a further $1.8m. With the jury's additional award of $2m in statutory damages, Costco is now on the hook for $15.75m in total damages. The parties have filed post-trial briefs.

Key Takeaways

  • The Lanham Act's bar on disparaging marks is dead. And the analogous "scandalous" and "immoral" bar is likely to suffer a similar fate.
  • An applicant or registrant can now rely on its historical use of the applied-for mark—in connection with goods or services other than those identified in the challenged application or registration—to defend a dilution claim in opposition or cancellation proceedings before the Trademark Trial and Appeal Board.
  • Trademark owners must carefully police their marks against imitations. If left unchecked, these third-party uses can undermine—or worse invalidate—one's rights.
  • Consent agreements are not always sufficient to overcome a refusal in the U.S. The consent must avoid likely confusion and fully contemplate real-life circumstances.

Footnotes

1 808 F.3d 1321 (Fed Cir 2015) (en banc).

2 2015 WL 2237665 (Fed Cir 2015).

3 See Matal v Tam, 582 U.S. ___ (2017).

4 118 USPQ2d 1289 (TTAB 2015).

5 In USITC Inv No. 337-TA-936 (U.S. International Trade Commission), 2016 WL 3475715 (ITC 2016).

6 In re Bay State Brewing Co, Inc, 117 USPQ2d 1958 (TTAB 2016).

7 Tiffany & Co v Costco Wholesale Corp, 1:13CV01041 (SDNY 2016).

Originally printed in Intellectual Property Magazine on August 29, 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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